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DESIGNING A COMEBACK

Federated attacks department store blues with revamped interiors

By Debra Hazel

Federated tested shopping carts, improved changing-room areas and other innovations at this Lazarus store in Easton Town Center, Columbus, Ohio.

Design improvements are one way to tackle sales declines and slackening interest in department stores, observers say. Federated Department Stores seems to have taken that message to heart with a new prototype aimed at easing the shopping experience.

Shoppers entering the company’s redesigned Lazarus store at Easton Town Center, Columbus, Ohio, are most likely to notice first the shopping carts, wider aisles, bigger signage and more-convenient revamped changing rooms. Scanners have also been provided to help shoppers calculate discounts.

The new Lazarus, a cutting-edge New Urbanist project developed by Steiner + Associates and unveiled in the fall of 2001, was the first of 42 redesigned stores across all of Federated’s divisions except Bloomingdale’s. An additional 100 will open in the coming year, according to the company, which also operates The Bon Marché, Burdines, Goldsmith’s, Macy’s and Rich’s.

The prototype is the result of a “reinvention” process announced nearly two years ago by President and COO Terry J. Lundgren to combat the onslaught of discounters and specialty stores.

“When the first reinvention discussion was held, it was no-holds-barred,” said Jean Coggan, Federated’s manager of community and public relations, describing how the retailer developed its ideas from conversations with focus groups about shopping convenience.

The working mother “favors stores that make her shopping trip easy and convenient … [with] shopping carts, wide aisles, fast checkout lines and clean fitting rooms,” said a Goldman Sachs report this summer on Federated and Kohl’s Corp. “When a retailer reduces hassle from the shopping experience, she rewards them with a greater share of her wallet.”

With that in mind, Federated’s SPACE (Store Planning, Architecture, Construction and Engineering) department, in cooperation with the Federated Merchandising Group, got to work. They tested different features individually in stores throughout the United States before putting them together at the Easton Town Center store. Even the approach to displaying apparel has changed. Signage now highlights fashion trends rather than designers, which is particularly important as Federated has developed such private-label brands as INC and Alfani to distinguish itself. Federated has also reduced the number of stockkeeping units, though it’s stocking more of what it does sell, resulting in a narrower but deeper assortment, particularly in intimate apparel.

Basic merchandise prices are more clearly posted, and the scanners throughout the store help customers check prices, which is considered especially critical during multiple-discount sales.

“We’ve had universal approval of our price checkers,” Coggan said. “It’s communicating our value. As often as not, our goods are as well priced as at a discounter.”

In another move to compete with discounters, the store is making it easier for shoppers to carry their stuff around. The shopping carts mean they no longer have to carry piles of clothes over their arms as they move from department to department. That, combined with centralized cash registers, also makes shoppers feel less pressured to immediately pay for an item when they pick it up, as well as making it easier to browse.

Fitting rooms have been consolidated into one location, with an adjacent lounge area where companions can wait and consult on the clothes being tried on.

Federated has also made an effort to attract younger shoppers, many of whom find department stores too stuffy. The store in Easton even offers Internet access in the juniors’ department, so that younger customers can check e-mail or buy movie tickets without leaving the store (though this has been discontinued at more recently redesigned stores).

“All of the elements were successful, but we had to pick and choose from what was cost-effective,” Coggan said.

The stores are carrying a narrower selection of merchandise — but also larger stocks to ensure they don’t run out.

As such, the prototype has continued to evolve since the Lazarus debut. The shopping cart used in Columbus, for instance, was changed from a high, supermarket-style vehicle to a hybrid stroller-cart that combines a solid framework with mesh.

“It offers a secure place to put your handbag,” Coggan said, rejecting any suggestion that carts are a discount store element that compromise the upscale environment of a department store.

“There are carts and there are carts,” she said. “The other elements, the design of the store, still say Lazarus or Macy’s.”

Federated has not included Bloomingdale’s in the redesign because the upmarket retailer is given much more autonomy, Coggan said. “We’re sharing the information with them so that it may be that different incarnations may find their way into Bloomingdale’s.”

Easton embraced the idea of housing the new prototype immediately, said Yaromir Steiner, president of Columbus-based Steiner.

“We are always enthusiastic when a retailer wants to experiment,” he said. “It’s worked.”

Federated’s choice of a Lazarus location at Easton was especially smart, he noted, because both the store and the center appeal to the young set. “Lazarus appeals more to Generation Y and X, and normally department stores don’t play that role.”

But will such innovations as these be enough to halt the decline of department stores? Federated has not gone far enough, according to Walter Levy, managing director of retail trends and positioning for Kurt Salmon Associates, a New York City-based retail, consumer and health care management consulting firm.

“They’re doing some refinements, but they haven’t moved out of the box,” said Levy, a noted critic of department store owners. “It’s an improvement of what was, rather than what should be.”

The trouble with department stores is their reluctance to be innovators, Levy said. Worse, they have retreated, dropping food items, electronics and other categories as newer, leaner retail chains outsold them. Meanwhile, more-innovative retailers have added services, such as the coffee bars Barnes & Noble has installed in its stores.

Department stores should expand the services they already provide, Levy argued, and they could do worse than to imitate Britain’s Marks & Spencer, which not only sells merchandise for the home, but provides customers the money to buy the home itself through its in-store bank.

Similarly, the stores already have bridal registries, so “why don’t they plan or cater the wedding?” he asked during a presentation at ICSC’s Fall Management and Marketing Conference in Minneapolis in late September. “Why haven’t they extended cosmetics to deal with nutrition? Some 24 percent of Americans are obese.”

By the same token, the stores have done little to capitalize on the potential marketing opportunities offered by their private credit card databases, he said.

Department stores have other, potentially great advantages, Levy added. They enjoy prime locations at U.S. regional malls, relationships with nationally regarded brands and little competition for some of their merchandise categories, including men’s wear, home goods and accessories for adults. In fact, department stores are apparel superstores, but don’t act that way, he said.

“Very few retailers can assemble entire wardrobes — clothes, shoes, accessories,” but department stores can, Levy said. “Department stores are inherently well positioned, but have squandered their advantages.”

Clearer signage, wider aisles and centrally located cash registers are all designed to make customers feel more kindly disposed toward department store shopping.

Levy says he’s not totally pessimistic about department stores. “But there has to be a revolution,” he added. “They have to be willing to take risks, replacing their merchandising orientation with one that is more strategic [and] market-driven.”

Goldman Sachs nevertheless remains optimistic about Federated, keeping the company on its recommended list.

“We view Federated’s risk-reward profile as compelling, based on its high quality within the department store sector … and renewed commitment to merchandising and format innovation,” the report said. “Management’s rejuvenated formats, with a stronger emphasis on convenience, value and differentiated brands across 50 stores in 2002, should help drive top-line performance over time.”

Time is needed. For the five weeks ended Oct. 5, Federated’s same-store sales were flat versus the same period in 2001, when the nation was stopped in its tracks after Sept. 11. At press time, October sales were expected to decline 1 percent to 2 percent. The company projects that fourth-quarter comp sales will decline 1 percent to 2 percent, compared with earlier projections of a 1 percent to 3 percent increase. Sales for the year ended Feb. 1, 2003, are projected to decline 2 percent to 3 percent.

Meanwhile, retrofits have been determined proportionately by division, with top priority given to higher-traffic units and those already scheduled for remodeling. And the reinvention is a continuing process, according to Coggan.

“This is the first phase — and the fastest changes, Federated has done,” she said. But more will follow. “Customer needs could well change.”

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